September 20th, 2018

Daily Market Commentary

Canadian Headlines

• There’s no NAFTA deal yet – despite hints of optimism as the latest deadline bears down. U.S. Trade Representative Robert Lighthizer and Canadian Foreign Minister Chrystia Freeland met twice Wednesday, in two sessions totaling nearly four hours after lower-level staff had worked through the night. Freeland emerged saying those officials’ talks would continue into the evening and she’d meet Lighthizer again Thursday.
• The price surge that has made pot stocks among the most actively traded in Canada is helping one firm more than any other: Toronto-Dominion Bank. The bank’s TD Securities unit has accounted for 21 percent of the buying and selling of marijuana stocks on Canadian exchanges this year, based on data compiled by Bloomberg that charted trading volumes of 125 pot companies. TD is the top brokerage for trading 13 of the industry’s 20 largest firms, including Aurora Cannabis Inc., The Green Organic Dutchman Holdings Ltd. and Namaste Technologies Inc., the data show.
• Canada is extending an olive branch to Saudi Arabia after a diplomatic blowout, as the countries weigh whether they can potentially avoid a prolonged standoff affecting Canadian firms and Saudi students. Tweets about a human rights case erupted last month into an unusually public brawl between two Group of 20 nations — both a rebuke of Prime Minister Justin Trudeau’s preachy brand of liberal foreign policy and the latest sign of the Crown Prince Mohammad bin Salman’s rising tendency to throw his weight around. The Saudis expelled the ambassador, curbed investment, recalled medical students and lambasted Canada for interfering in domestic affairs.
• South Korea’s Hanon Systems signed agreement with Magna International to acquire its fluid pressure & controls business in a transaction valued at ~$1.23b, before the assumption of net debt, according to statement from Hanon.

World Headlines

• European stocks opened little change Thursday as investors weigh the latest threats on the trade war between the U.S. and China and the stalled Brexit negotiations. The Stoxx 600 Index was steady, after a 0.3% gain of Wednesday. Basic resources and the banking sectors gained ground again.
• U.S. stock index futures rise slightly, following European stocks higher. Some equity benchmarks advanced in Asia as China was said to be planning to cut the average tariff rate it charges on imports from the majority of its trading partners as soon as next month. The dollar fell while emerging-market assets continued to rally off the lows seen earlier this month. August data on U.S. existing-home sales on Thursday will show whether purchases declined for a fifth straight month, which would be the longest streak since 2013-14.
• Japan’s best five-day stock market rally in almost two years has got bears baffled. Bulls have only one message: You’ve been selling the wrong market. The Topix index roared back to life this week, even as the U.S. and China pressed ahead with additional tariffs on each other’s goods. Japan’s rally followed a large selloff by foreign investors that had made the benchmark gauge one of the worst performers among developed markets this year. In another sign of how bearish things have been, short selling has accounted for over 40 percent of trading on the Tokyo Stock Exchange for much of 2018.
• Oil extended gains from a two-month high on concerns over market tightness after U.S. crude inventories fell for a fifth week at a time sanctions on Iran threaten supplies. Futures rose as much as 1 percent in New York, after settling on Wednesday at the highest level since July 10. Government data showed U.S. crude inventories fell to the lowest since February 2015 and stockpiles at the Cushing storage hub declined for a second week. The drop has been spurred by the nation’s increased oil exports, which jumped last week to the highest level since July.
• Gold holds advance on weaker dollar amid easing concerns over full-blown trade war, with reaction to fresh U.S. and Chinese tariffs more muted than expected. Palladium trades near 5-month high.
• Germany and France, the European Union’s two most powerful countries, struck a downbeat tone about the prospect of a Brexit deal, as the two sides failed to come up with proposals to break the deadlock. U.K. Prime Minister Theresa May gave her EU counterparts a 10-minute speech over dinner on Wednesday night, in which she asked them for concessions to get a deal over the line. As leaders arrived for their meeting in Salzburg on Thursday, they signaled an unwillingness to move.
• Aston Martin is seeking a valuation that it expects will top its only listed rival, Ferrari NV. Analysts on the other hand? They’re not so sure. The maker of luxury sports cars made famous in the James Bond movies filed details for an IPO in London Thursday that would value the U.K. company at up to 5.07 billion pounds ($6.7 billion). That would surpass the multiples of Ferrari, which makes more profit and churns out oodles of cash.
• The drawn-out battle for control of Sky Plc will reach a climax this Saturday in an one-day auction to decide the fate of Europe’s biggest satellite broadcaster. Britain’s Takeover Panel will start the auction with bidders 21st Century Fox Inc. and Comcast Corp. at 5 p.m. on Sept. 21 in London and end the process Saturday evening, according to a statement. The auction will involve a maximum of three rounds, all of them on Saturday. Sky shares were little changed at 15.79 pounds at 10:30 a.m.
• Denmark’s government says Danske Bank A/S is potentially facing a fine as big as 4 billion kroner, or about $630 million, if found guilty for its role in one of Europe’s biggest money laundering scandals. The penalty would mark a Danish record for such cases. What’s more, it doesn’t take into account potential fines that might be levied elsewhere. Bloomberg Intelligence estimates Danske may have to pay more than 1 billion euros ($1.2 billion) in total, while a Bloomberg News survey points to about $800 million, roughly matching the amount that Deutsche Bank AG and ING Groep NV paid for similar misdeeds.
• China is planning to cut the average tariff rates on imports from the majority of its trading partners as soon as next month, two people familiar with the matter said, in a move that will lower costs for consumers as a trade war with the U.S. deepens. Premier Li Keqiang said Wednesday that China would further reduce the tariffs, without elaborating. The two people who spoke on the new reduction asked not to be named as the matter isn’t public yet.
• Nestle SA’s likely retreat from skincare fuels questions about the company’s broader involvement in cosmetics and the future of a prized asset that many investors want to see sold: a $30 billion stake in L’Oreal SA. Nestle said Thursday it would consider new owners for its dermatological business, a unit with $2.8 billion in annual revenue that Chief Executive Officer Mark Schneider said may no longer fit with the company’s overall strategy of focusing on products such as coffee, water and pet food.
• Astaldi SpA’s largest lenders are asking international investment funds to provide a new loan to the troubled Italian builder, according to people familiar with the matter. Representatives for the banks contacted several credit funds that specialize in providing rescue finance, said the people, who asked not to be identified because the negotiations are private. The lender group includes Banco BPM SpA, BNP Paribas SA, Intesa Sanpaolo SpA and UniCredit SpA, the people said.
• Russia’s crude production has jumped to a new post-Soviet record, boosting the nation’s budget revenue as it prepares for talks with OPEC+ on further cooperation, according to a government official. The country’s oil output is currently fluctuating between 1.54 million and 1.55 million tons a day — driven mainly by state-run giant Rosneft PJSC — the official said, asking not to be named as the information isn’t public yet.
• Chinese authorities paved the way for wealth management products to invest directly in the stock market, as policy makers try to reduce the potential risks associated with WMPs buying third-party offerings. Commercial banks can now open accounts to invest their WMP assets straight into all “sanctioned” financial products, China Securities Depository and Clearing Corp. said in a statement on its website Wednesday. Previously the funds could only be directly invested in fixed income products. The CSDC clarified in a statement on Thursday that changes in investment scope would require approvals from regulators.
• Peter Kraus, the Wall Street veteran who recently led AllianceBernstein Holding LP, is starting a mutual fund company focusing on changing fee structures for investors. Italian insurer Assicurazioni Generali SpA is backing Kraus’s New York-based firm, contributing as much as $4 billion to Aperture Investors, according to a statement Thursday. The goal is for the firm’s money managers to be paid mostly based on outperforming an index. If they don’t, the fees are meant be kept in line with exchange-traded funds, which track indexes at low cost.
• When a nation’s central bank raises interest rates, it’s often a bullish sign for the currency. Not so in the U.S., where expectations for a Federal Reserve rate hike next week are flashing sell signals for the dollar. BNP Paribas Asset Management says the broad greenback could plunge 10 percent in the next six to nine months, while Invesco Ltd. forecasts it’ll sink about 3 percent against the euro by year-end. Both firms are watching the Fed’s Sept. 26 decision for any comments on the impact of escalating trade tensions. The two companies also see the currency sliding as other central banks inch closer to monetary tightening.
• Precision Motion Industries Inc., whose components are used in semiconductor equipment, is exploring a sale that could value the Taiwanese company at more than $1 billion, according to people familiar with the matter. Closely held PMI is working with a financial adviser on the potential deal, said the people, who asked not to be identified because the deliberations are private. The company has attracted interest from private-equity firms and other industrial companies, one of the people said.
• The World Bank’s International Finance Corp. is seeking a buyer for its stake in Vietnam Joint Stock Commercial Bank for Industry & Trade, the country’s third-largest lender by market value, according to people with knowledge of the matter. IFC, which invested in the bank in 2011, is working with an adviser on the potential sale of its 8 percent stake, the people said, asking not to be identified because the information is private. Shares of VietinBank have risen 11 percent this year through Wednesday, giving it a market value of about 99.8 trillion dong ($4.3 billion).

*All sources from Bloomberg unless otherwise specified